September 19, 2002

September 19, 2002 | Executive Summary on Welfare and Welfare Spending

Executive Summary: Six Myths About Child Care

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In recent years, welfare and child care policy have become linked. The failed Aid to Families with Dependent Children program was replaced in 1996 with the new Temporary Assistance for Needy Families (TANF) program which requires welfare recipients to work or prepare for work in order to receive public assistance. These working parents often need financial assistance to keep their children in day care during the workday.

Congress anticipated the new demand for child care by concurrently implementing policies that (1) increased federal and state child care spending from $3.2 billion in 1996 to $11 billion in 2002, and (2) increased the number of children receiving subsidized child care from 2 million to 3.6 million.

Despite these massive funding and enrollment increases, activists and some Members of Congress are still lamenting an alleged "child care crisis." But many of the arguments concerning welfare and child care--such as the following six myths--are outdated or misleading.

MYTH: Just 12 percent of all needy children receive child care assistance.

FACT: A more realistic calculation produces estimates ranging from 80 percent to 90 percent.

A 2000 study by the Department of Health and Human Services (HHS) concluded that only 12 percent of needy children receive federal child care subsidies. However, the study contained several errors that render its conclusions worthless. In defining needy children lacking child care assistance, the study included families of four earning as much as $64,000 per year, schoolchildren, children whose parents were not working more than one hour per month, and children cared for by relatives and friends. The count excluded children receiving child care assistance through TANF, the Social Services Block Grant, and Head Start. A more realistic estimate is that some 80 percent or 90 percent of needy children either receive subsidized child care assistance or use some type of informal care.

MYTH: Government child care funding has been flat over the past decade.

FACT: Government child care funding increased 409 percent from 1992 to 2002.

Most government child care spending comes through two programs: the Child Care and Development Fund (CCDF) and TANF. Child care spending in these two programs (including their predecessors) rose 409 percent from $2.2 billion during 1992 to approximately $11 billion in 2002. Several additional federal and state programs either subsidize child care directly or reduce the need for subsidized child care programs. Programs such as Head Start spent an additional $16 billion for child care and related services in 2002, most of which was geared to lower-income families.

MYTH: The only way to increase child care spending is for Congress to appropriate new funds and increase costs for the taxpayer.

FACT: Child care spending has increased dramatically since 1996, and two-thirds of new child care spending has come from savings in the TANF program due to welfare reform.

Past experience demonstrates that most increased child care spending does not come from new congressional appropriations, but from the fiscal savings generated by welfare reform itself. Of the $7.8 billion increase in annual child care funding since 1996, only $2.2 billion resulted from new spending appropriated by Congress. The remaining $5.6 billion came from TANF savings that had been redirected into child care subsidies.

How were states able to redirect so much money into child care? By adding work requirements to welfare reform that moved millions of recipients into jobs and saved billions of dollars in TANF payments. States then reinvested much of these savings into child care. Strengthening TANF work requirements in 2002 should reduce caseloads further and free up more TANF funds for child care.

MYTH: States use their discretion to set excessively strict eligibility standards, excluding millions of poor families from child care subsidies.

FACT: The average state covers working families with incomes up to 196 percent of the federal poverty level.

In 2001, the average state set an upper eligibility standard at 196 percent of the federal poverty level, or $28,675 for a family of three, and 24 states granted eligibility to families with incomes at 200 percent of the federal poverty level or higher. The non-income-related child care eligibility requirements are designed inclusively as well.

MYTH: Eligible poor families face lengthy waiting lists for child care assistance.

FACT: Nearly every eligible applicant with an income below the federal poverty line receives assistance.

Two separate analyses examined caseloads in 1999 and 2001 and found that sampled states served 100 percent of eligible child care assistance applicants who were on or had just left TANF. Additionally, 29 states went beyond serving all eligible TANF applicants by also serving 100 percent of all eligible non-TANF families who applied for child care assistance. The remaining states often had surplus CCDF and TANF funds that could have been shifted to alleviate any child care funding shortage.

MYTH: Child care subsidies are too small to make child care affordable.

FACT: The typical subsidized family at the poverty level pays just $11 per week for their child's care.

A 1999 HHS study that reported that families in poverty with preschool children spend 18 percent of their income on child care was based on data from 1993--when child care funding was one-fifth its current level.

A more recent study revealed that in 2001, the average three-person family with an income at the federal poverty line was paying a weekly co-payment of just $11 per child, or 4 percent of its gross income. To pay the child's $126 weekly bill to the child care facility, the local CCDF-funded program was funding the other $115. It should come as no surprise that client families do not consider these co-payments a significant financial burden.

Brian M. Riedl is Grover M. Hermann Fellow in Federal Budgetary Affairs in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.

About the Author

Brian M. Riedl Grover Hermann Fellow in Federal Budgetary Affairs
Thomas A. Roe Institute for Economic Policy Studies